VAT

VAT (Value Added Tax) is a tax charged at the point of sale of the majority of goods and services, and passed on to the government by the seller. By the same token, the seller charging the VAT can also reclaim any VAT they themselves paid on purchases made for the business. Businesses have to register for VAT if their turnover in the last 12 months was above £85,000. Below this threshold, registration is voluntary. Most food is zero-rated for VAT, and so for the vast majority of farmers and growers it is well worth registering, even when you are below the threshold of compulsory registration because you will be able to claim VAT back on the input and set up costs of your business.

However, some food that farms sell direct to the public is standard rated and so your pricing and accounting must reflect this. Standard rated foods include catering, alcoholic drinks, confectionery, crisps and savoury snacks, hot food, sports drinks, hot takeaways, ice cream, soft drinks and mineral water.

Furthermore, it is now an obligation for VAT registered businesses with a turnover above £85,000 to keep digital records if you want to reclaim VAT, and to make returns via the Government gateway. To do this you must use software that is compatible with HMRC. If you anticipate going over this threshold, it is worth checking accounting software before purchasing it to be sure it will be compliant - this will save a costly and tedious change of system later on.

More information on VAT can be found here: https://www.gov.uk/vat-rates